LONDON/BIRMINGHAM The British government expressed support for shale gas on Monday, with the energy minister saying he hoped to allow more exploration and the finance minister talking of a favourable tax regime for the energy source opposed by many environmentalists.

Edward Davey, who heads Britain's Department of Energy and Climate Change (DECC), said he hoped to lift a suspension on new shale gas exploration that was imposed last year due to concerns about the fracking technology used to exploit it.

"I hope it will prove possible for me to give a green light to shale," Davey told a gas conference in London.

Speaking at the ruling Conservative Party conference in Birmingham, central England, Chancellor (finance minister) George Osborne said he was considering a "generous new tax regime" to encourage investment in shale gas.

"The idea that we should be sitting on enormous energy reserves that could potentially create thousands of jobs and reduce consumer bills and not do anything about it is absolutely absurd," an aide of Osborne told reporters at the party conference.

The aide said one option for a shale gas tax regime would be to remove it from a supplementary charge on corporation tax that applies to offshore North Sea oil and gas exploration.

"I'm sure there are other options, but that is why we want to have a consultation with the industry," the aide added.

The government suspended the development of shale gas extraction last year after the work triggered two small earthquakes near Blackpool, in the northwest, adding to fears about hydraulic fracturing - a method of drilling through shale deposits to retrieve gas by injecting liquids and chemicals.

"In principle, I'm all in favour of exploiting new resources. I would welcome as much as anyone a way to boost Britain's indigenous gas supplies and to reduce energy prices to consumers and businesses alike," Davey said.

The British business lobby welcomed the government's move on proposals to provide incentives for shale gas exploration.

"It makes sense to maximise the amount of energy we can produce at home at reasonable cost," John Cridland, Director-General of the Confederation of British Industry (CBI) said in a statement.

"Incentivising the exploration of shale gas sits alongside investment in renewables," he added.

CAUTION

The energy ministry now has to decide whether to allow new holes to be drilled. Davey said his department was approaching the question with caution.

"I make no apology for being a little more patient. Questions about regulatory oversight and the involvement of communities need to be answered rather than simply dismissed," he said.

Environmental groups and large sections of the public in western Europe oppose fracking. Bulgaria and France have both banned shale gas exploration which they say poses unacceptable risks of water and soil pollution and health risks.

Britain was a net exporter of gas until 2004, but a steady decline in output over the past few years has made it more reliant on imports, mostly from Norway and, increasingly, Qatar.

The British Geological Survey estimates Britain's onshore shale reserves at 5.3 trillion cubic feet (150 billion cubic metres), which would be enough to meet its gas consumption for one and a half years, although UK shale gas exploration firms such as Cuadrilla Resources have put their figures as high as 200 trillion cubic feet.

In the United States, a shale gas boom has resulted in a sharp rise in natural gas production, leading to a collapse in domestic prices and the possibility of the U.S. exporting liquefied natural gas (LNG) by 2015.

(Writing by Henning Gloystein; editing by Robin Pomeroy and James Jukwey)

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